MOP 6.00 Number 668 Tuesday November 8, 2014
Publisher: Paulo A. Azevedo
Closing editor: Sara Farr
Amax: Macau court presses for last year’s accounts > PAGE 5
Fiscal surplus under threat
I
Year III
t’s been a great ride. Double-digit gaming growth has been the norm. But time to come down to earth. The government has a big stake in this as 80 percent of its revenue derives from gaming tax. The administration may have reached its whole-year target. But that’s no thanks to the last five months. From January to October, expenses grew three times faster than revenues. The former increased by 14.8 percent to MOP46.4 billion and the latter by only 4.7 percent, Financial Services Bureau data shows Page
HK stocks fall as link debuts At last. The Shanghai-Hong Kong exchange link opened yesterday. Giving foreign investors unprecedented access to China’s US$4.2 trillion stock market. But with it, the Hong Kong Exchanges & Clearing Ltd dropped the most in three weeks. The Macau branch of the Bank of China announced it would provide its clients with trading services via online and phone banking
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2
Residential prices jump 50pct in one year
No place like home
Page 3
China credit plunge stymies Macau recovery
It seemed like a good idea. But only 14 applications have applied to convert industrial buildings into residential units. And only two have had their draft plan approved. The legal requirements of gaining unanimous approval from owners for conversion has been a major stumbling block. The scheme was conceived by the government as a means of boosting the supply of private mid and small-sized flats
Page 5
HSI - Movers November 17
Name
Page 3
%Day
China Mengniu Dairy
1.63
Bank of East Asia Lt
0.62
Hang Seng Bank Ltd
0.38
Hengan International
0.30
Belle International
0.30
China Petroleum & Ch
-2.20
Tingyi Cayman Island
-2.27
China Mobile Ltd
-2.28
Galaxy Entertainment
-2.73
Hong Kong Exchanges
-4.45
Source: Bloomberg
I SSN 2226-8294
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2 | Business Daily
November 18, 2014
Macau
Turning point for fiscal surplus After years of growing of double digit growth, the government’s fiscal surplus will likely decrease in 2014 as revenues from gaming taxes drop heavily and the administration lacks margin to cut its current expenses, which are going up three times faster than revenues Luís Gonçalves luis.goncalves@macaubusinessdaily.com
T
he Macau Government is seeing its ‘profits’ (from the fiscal surplus) shrinking faster every month and is likely to end the year in the red, as gaming revenues enter a double digit fall and current expenditure rises by more than 20 percent. Even if the year is ‘saved’ because the government has already surpassed the fiscal surplus budget for 2014 due to a great casino performance in the first half, the post-Summer blues are flashing several warning signs regarding public finances. According to the Financial Services Bureau, the fiscal surplus (the difference between what the government receives and spends) between January and October reached MOP85.7 billion, 0.04 percent less than a year ago. That’s the first decrease in accumulated figures this year and probably the first of many in the upcoming months. With a government that gets 80 percent of all its revenue from gaming taxes, it was only a matter of time for the turning point in public finances to happen. The accumulated fiscal surplus started to decrease in October after gaming revenues declined for five straight months, especially last month when the drop was of the order of 23 percent. With investors expecting a new drop in casino revenues of around 20 percent in November and December, the fiscal surplus will diminish compared to 2013. Especially when the government
doesn’t have the margin to cut its current expenses (like wages, benefits) by the same amount. The impact of the slowdown in the gaming industry is clear on the public finances of the territory. From January to October, expenses grew three times faster than revenues. The former increased by 14.8 percent to MOP46.4 billion and the latter by only 4.7 percent, Financial Services Bureau data shows. Tax revenues from gaming (that represent 90 percent of all taxes collected) also went up 7 percent, half the expense rate growth. This is just the opposite scenario Macau was enjoying only a few months ago. In May, for example, government revenues were growing
MGS kicks off today Visitors from an estimated 20 countries and regions are expected in Macau this week for the second Macau Gaming Show and co-located Macao Gaming Summit, both of which are taking place at The Venetian between November 18 and 21. The exhibition - which has attracted a record 146 companies, up 30 percent on the 2013 figures - will feature an opening ceremony to celebrate its second edition. The official opening ceremony will take place at 10:00am today, November 18, in Halls A and B of The Venetian. Previewing the credentials of the 2nd Macao Gaming Show whose mission statement is ‘By Asia, for the World’ - Jay Chun, chairman of trade body MGEMA, one of the main driving forces behind the exhibition, said: “An exhibition is nothing without exhibitors, and visitors to MGS will have access to the very best exponents in their fields covering the six sectors of Gaming Equipment & Accessories, Gaming Promoters & VIP Clubs, Casino Fixtures & Fittings, Promotional Services & Memorabilia, Food & Beverage and Entertainment & Performance. In addition, we will also have events and features including the highly popular Slot Experience Centre as well as the Macao Gaming Summit.”
by 15 percent, while expenses were going up by only 5 percent. That all ended in June. Now the government is likely to close the year with a smaller fiscal surplus than last year, interrupting years of double-digit growth to its ‘profits’. In 2013, the fiscal surplus went up 32 percent year-on-year, in 2012 more than 14 percent (14.1 percent) and in 2011 more than 50 percent (52.2 percent). The government reached the target for its fiscal surplus in 2014 (MOP63.6 billion) in the Summer – just in time to avoid the effect of the gaming crisis - and is now running 34.5 percent above budget. But the 2014 budget was designed when the market was predicting a growth of 20
percent in gaming revenues in 2014, a clear sign of underestimation by the authorities. In 2015, the situation will be much more challenging. According to the Monetary Authority of Macau (AMCM) – which breaks down public finance data by month – in September alone, public revenue decreased 9.9 percent year-on-year, while direct taxes from gaming plummeted 6.1 percent. Public expenditure, however, skyrocketed 28.9 percent. The result: a drop of 28.3 percent in the fiscal surplus. In September, total gaming revenues in Macau declined by 11 percent. And with October revenues down 23 percent, the impact on the fiscal surplus will not give Chui Sai On much reason to smile.
Association: Cross-border motor insurance plan in the works
I
t is “highly possible” that owners of vehicles with Macau licence plates can purchase a single crossborder motor insurance plan in either Macau or Hengqin in Zhuhai next year. The president of the Macau Insurers Association, Mr. Jiang Yi Dao, informed media of this development at an event on Sunday. Under this special motor insurance policy, owners of locally-registered vehicles can notify their insurance companies in the city to arrange for claims with their mainland partner insurance firm should they have a car accident in Hengqin. Mr. Jiang noted that Macau insurance industry representatives were still in talks with their mainland counterpart, Guangdong Association of Insurance Industry, on the design of the thirdparty insurance terms, saying details would be announced jointly with the Monetary Authority of Macau. Mr. Jiang mentioned that currently the basic premium car owners had
to pay for third party insurance in mainland China was at least 1,500 yuan (US$245, or 1,955 patacas) a year, which is more expensive than in Macau. As at late September, of the 12 local insurance institutions that sell motor insurance plans at least six had already applied to the financial regulator here to offer cross-border motor insurance plans, a board member of the Monetary Authority, Mr. António José Félix Pontes, said at the time. The marketing of this special motor insurance plan is still pending the date the mainland authority announces that Macau-licensed cars can travel freely in Hengqin Island. The director-general of the Hengqin Administrative Committee, Niu Jing, told media last month that the 24-hour border crossing between Macau and Hengqin is likely to happen by the end of this year. S.L.
Business Daily | 3
November 18, 2014
Macau
Industrial Residential prices jump gentrification policy 50pct in one year hits brick wall The price per square metre in Macau
increased by half year-on-year during The government has been receiving the third quarter of the year. Coloane a lukewarm reception from developers is the most expensive area to live regarding the special scheme that allows in the Special Administrative Region industrial units to be converted into João Santos Filipe residential flats jsfilipe@macaubusinessdaily.com
Stephanie Lai
sw.lai@macaubusinessdaily.com
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O
f the 14 applications filed with the government for the special scheme which allows developers to convert industrial building units into residential flats, on the books since April 2011, only two cases have seen their draft construction plans approved. This is according to a Land, Public Works and Transport Bureau (DSSOPT) reply to a legislator’s written enquiry. In a reply to legislator Chan Meng Kam’s enquiry about the effect of the special scheme, recently retired Land, Public Works and Transport Bureau director Jaime Roberto Carion noted that the government had already issued “urban condition plans” to 12 of the 14 applications seeking to convert industrial building units into residences. An urban condition plan is a document issued by the Bureau that determines a project’s construction area, building height limit and public facilities. Mr. Carion, who dated his reply on the day of his retirement on November 1, said only two of the 14 cases have had their draft construction plans approved. The reply was only released to the public yesterday. These applicants had filed for the special scheme, known as the revitalising scheme for industrial buildings initially launched in April 2011 as a year-long initiative that was later extended twice. The scheme requires 70 percent of the flats in a converted industrial
he average price of residential units increased by half in the course of a year, the Statistics and Census Service (DSEC) data revealed yesterday. In the third quarter of 2013, the price per square metre was MOP66,936. However, this year it jumped to MOP100,024 per square metre, an increase of 49.4 percent. Concurrently, however, there was a reduction in the number of transactions. Last year, during the third quarter, there were 1,908 residential transactions recorded but this year that number decreased to 1,769, a slight drop of 7.2 percent. In spite of the reduction in the number of transactions the amount transacted was boosted by 35 percent from MOP8.4 billion to MOP11.4 billion in the year reviewed. In terms of prices of residential units in Macau, the market for over MOP6 million was the most popular. In total, 658 units were sold for MOP6 million or more. The second most active market for residences ranged from MOP2 million to MOP3.9 million (503 units sold). Some 362 transactions ranged from MOP4 million to MOP5.9 million, while 246 deals closed for less than MOP2 million. Coloane is the most expensive place to buy a residential unit in Macau, at an average MOP130,751 per square metre. Taipa follows, at MOP110.076 per square metre, while the Macau Peninsula has the cheapest
premises to be no larger than 60 square metres (646 square feet). It also says that the combined gross floor area of the small flats must be at least half of the total gross floor area of the conversion project. The scheme, which was conceived by the government as a means of boosting the supply of private mid and small-sized flats, has proved to be of little interest to developers in the past three years since its launch. Former public works official Mr. Carion admitted in his reply that the legal requirements of gaining unanimous approval from owners for the conversion of industrial units was the major reason for the few number of applications. He did not cite any concrete direction on how the scheme might be amended. The city’s industrial buildings, mostly concentrated in Areia Preta district in the northern part of the Macau Peninsula, now serve as bases for logistics companies, small offices and non-profit association activities. The average transaction cost for the industrial units here has risen by 181 percent from MOP12,001 (US$1,535) per square metre in 2011 to MOP33,721 per square metre at the end of last year, outpacing the 97 percent average rise in transaction cost for a home. The latter went for an average of MOP81,811 per square metre at the end of last year compared to two years ago, data from the Statistics and Census Service shows.
houses, at an average MOP93,759 per square metre. During the third quarter of the year, a total of 323 residential units had received construction approval. Of these, 63 included the construction of new buildings, while 32 were completed buildings.
Parking space transactions Meanwhile, the market for parking spaces accounted for MOP1.6 billion involving a total of 875 transactions at the end of the third quarter of the year. This is an increase of 98.5 percent (MOP82 million) and 10.2 percent (794 transactions) year-onyear, respectively. The industrial market registered the highest year-on-year increase in terms of value, excluding residences, jumping from MOP0.42 billion to MOP1.08 billion, which represents a 154.9 percent jump. As for the number of transactions, there was a 53.8 percent year-on-year rise from 39 to 60 Also. in the third quarter of this year commercial transactions rose 7.7 percent year-on-year from 273 to 294 transactions and 14.5 percent in the amount involved from MOP2.8 billion to MOP3.2 billion. Office transactions registered a contrary trend, as the number of deals fell 65.8 percent from 149 to 51, with the amount diving 39.5 percent from MOP0.9 billion to MOP0.548 billion.
Average price of residential units MOP/m2 Q3 2014 Q3 2013
Y-O-Y
Change Overall 100,024 66,936 49.40% Macau Peninsula 93,759 65,466 43.20% Taipa 110,076 70,229 56.70% Coloane 130,751 74,660 75.10%
4 | Business Daily
November 18, 2014
Macau Brands
Trends
Fabulously British Raquel Dias newsdesk@macaubusinessdaily.com
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he newest addition to the mid-range fashion market in Macau just opened its doors. Jack Wills, the British brand that favours the college graduate market, is hitting Asia big time. Their boutique in Hong Kong has been in business for three years now, but Macau and Singapore have joined the list. With a new image, one that favours a larger age group, Jack Wills has been growing as a brand. If you visit the newly opened Macau boutique you will see that the pieces chosen are different from what we’ve come to expect on this side of the planet. Simple cuts and grown-up blazers for both ladies and gentleman are the norm. There’s a lot of tweed, good quality wool and sturdy but elegant shoes. The other surprise is to see that the British brand chooses to maintain the prices it charges in Europe, a different move from many of their competitors. Although Jack Wills might be known as the young crowd’s choice in Europe, something tells me that it will be favoured by young professionals rather than university students here. All those looking for sophisticated yet comfortable attire will be happy with the shop’s offerings. The boutique has been cleverly placed between other mid-range higher quality brands at The Venetian Macao. Massimo Dutti, French Connection and Miss Sixty are all neighbours of the newest British arrival.
Engineering Science Master’s from MPI T
he government of Macau has authorised Macao Polytechnic Institute (MPI) to run a Master’s degree in engineering to be ministered by the University of California, located in the state of Los Angeles in the United States of America. The decision was taken on November 5 and published yesterday in Macau’s Official Gazette. The dispatch was signed by the Secretary for Social
Affairs and Culture Cheong U. The Master’s course will start next month, with prospective students deciding if they want to concentrate on Electronic Engineering or Computer Network Engineering. For the Autumn 2013 programme, the University of California’s engineering department accepted a total of 3,178 undergraduate enrolments and 1,820 graduate enrolments. Of these, 59
undergraduates and 74 graduates enrolled for nuclear engineering, while 150 undergraduates signed up for the engineering science programme. According to the U.S. News & World Report, UC Berkeley’s undergraduate programme in environmental engineering ranked number 1 in 2014, while in the graduate programmes all three – civil, electrical and environmental – engineering degrees ranked first.
Record turnout for Macau Gaming Show A record number of exhibitors are expected to show at this year’s Macau Gaming Show, with an international line-up of gaming experts all primed to speak at the co-located Macau Gaming Summit Joanne Kuai
joannekuai@macaubusinessdaily.com
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n estimated 10,000 visitors from 20 countries and regions are expected to attend the second edition of the Macau Gaming Show (MGS) which starts today at The Venetian. The Macau Gaming Summit and an exhibition displaying products and services from both the gaming and non-gaming sides of the industry will feature. Organisers say that 146 exhibitors will appear at the show, which is a record high and a 30 percent increase compared to the previous year. The exhibition will occupy a floor area of over 10,000 square metres, featuring six gaming industry segments, including gaming equipment and accessories, gaming promoters and VIP clubs, casino fixtures and fittings, promotional services and memorabilia, food and beverages, and entertainment and performances. Over 30 expert speakers will
participate in the 20 debates at the 3-day event, addressing topics such as new markets in Asia, best practices for land-based casinos, igaming marketing, player acquisition and analysis, appealing to the mass market and lucrative Chinese gamblers. One of the highlights of the Macau Gaming Show is that five of Macau’s key junket operators will make an appearance, sharing their personal knowledge of the Asian gaming market. “The organising team at MGS is considered an insider of the Asian gaming industry, which means that we’re able to attract influential companies that don’t attend shows perceived as being organised by ‘outsiders’,” said Jay Chun, Chairman of the trade body Macau Gaming Equipment Manufacturers Association (MGEMA), one of the main driving forces behind the exhibition. The five VIP junket groups attending
this year’s MGS are AG Group, David Group, Heng Sheng Group, Macau Golden Group and Suncity. In a statement issued ahead of the event previewing the credentials of the second Macau Gaming Show, Chun said “An exhibition is nothing without exhibitors, and visitors to MGS will have access to the very best exponents in their fields… In addition, we will have events and features including the highly popular Slot Experience Centre as well as the Macao Gaming Summit. “In addition to receiving widespread commercial and government support from within Macau, we’ve attracted a distinguished international lineup of thought leaders who will be focusing on key gaming topics and how they impact both established and emerging nations including Japan, Laos, Cambodia, Vietnam, Korea and Sri Lanka as well as Macau”.
Business Daily | 5
November 18, 2014
Macau Amax: Macau court presses for last year’s accounts
China credit plunge stymies Macau recovery T he Macau gaming industry has little option but to sit and wait for credit in China to recover from its record slump before seeing revenues and profits here return to the good old days. In a note to investors yesterday, Wells Fargo, underlined that Chinese credit growth is a ‘key leading’ indicator in assessing Macau revenue growth. But news from the mainland regarding credit is far from encouraging. In October, credit in China fell 37 percent from September and 23 percent from a year ago. Bad loans are also posting record figures with US$12 billion at risk of not being repaid. With credit less available or more expensive to get, junkets and gamblers here are having additional difficulties in getting gaming chips. On consensus, the VIP segment was the most affected when the economic tide turned sour, and in recent months investors have noticed that premium mass and even mass
players are being impacted by the credit crunch. Wells Fargo says that credit growth leads VIP growth by 6 to 12 months but there are no signs in China that credit has already bottomed as sequential and year-on-year growth continue into negative territory. The US bank is expecting gaming revenues to decline 16 to 18 percent this month in Macau versus the 12 percent drop estimated just a few weeks ago. The weakness of mass revenues is one the drivers. For November and December, Wells Fargo predicts a drop in gaming revenues of between 18 and 19 percent, with gains from VIP decreasing by 27 percent and mass by 6 percent. Gaming stocks continue to suffer the effects of negative headlines and have underperformed the market (given S&P 500) by 2.1 percent since the beginning of the month and by 12 percent since January. L.G.
The latest court ruling was in favour of Amax International, which is pressing its associate Greek Mythology Entertainment to provide last year’s accounts Stephanie Lai
sw.lai@macaubusinessdaily.com
T
he Court of First Instance of Macau ruled in early November that gaming investor Amax International Holdings Ltd’s partowned associate running the Greek Mythology Casino must provide its management accounts for last year within 60 days, Amax’s boss Ng Man Sun told the Hong Kong Stock Exchange on Friday. In June, Amax International filed a litigation suit with the Court of First Instance against its associate Greek Mythology (Macau) Entertainment Group Corp Ltd in relation to its failure to provide its annual accounts for the year ended December 31. Amax International, chaired by Ng Man Sun, owns 24.8 percent of equity interest in Greek Mythology (Macau) Entertainment Group Corp Ltd, which operates gaming tables in Casino Greek Mythology inside the Imperial Palace Hotel in Taipa – previously known as the New Century Hotel – under the gaming licence of Sociedade de Jogos de Macau S.A. The Court of First Instance
here ruled on November 7 that the administrator of Greek Mythology Entertainment must provide its management accounts for last year within 60 days, the Friday filing from Amax International reads. “The court can order the termination of the functions of any one or more administrators and order a judicial examination in accordance with Article 211 [of the Commercial Code], appointing a judicial administrator with the task of preparing the annual accounts and report of the administration covering all the time elapsed since the last approval of the accounts,” Amax International noted. In the filing, Amax noted that its casino associate can appeal the court decision within 16 calendar days from the date of receiving the ruling. This latest ruling has announced yet more missing accounts from Greek Mythology Entertainment, as Amax International announced in midOctober that it was seeking “further legal advice” regarding the missing management accounts of its associate for calendar year 2012.
澳 門 特 別 行 政 區 政 府 Governo da Região Administrativa Especial de Macau 澳 門 格 蘭 披 治 大 賽 車 委 員 會 Comissão do Grande Prémio de Macau
Barrier Gates Removal Schedule for the 61st Macau Grand Prix The Macau Grand Prix Committee began removal of the barrier gates immediately after the end of the event. The first stage of deconstruction has been completed early the next morning. We hope to minimize any inconvenience caused to the public. It is expected the entire circuit will re-open on 27th November. Date
Hour
17-19/11/2014
08:00 to 22:00
(1) To remove all barrier gates (2) To remove all barriers along the barrier gates
17-21/11/2014
08:00 to 22:00
To remove all barrier gates from Avenida da Amizade to Reservoir Bend
20 - 27/11/2014
08:00 to 22:00
To remove all barrier gates from Rua dos Pescadores to Reservoir Bend
22 - 27/11/2014
08:00 to 22:00
To remove all barrier gates at the lower part of the Guia Hill
Area
The Committee seeks the understanding of motorists for the inconvenience caused by the construction, as well as to respect the temporary signage and instructions from the Traffic Authorities. For further information, please call 2872 8482.
6 | Business Daily
November 18, 2014
Tourism
Beijing’s anti-graft campaign hits travel companies
Since China opened its doors to international tourism in the late 1970s, much of the outbound travel was by Chinese official delegations. This led to a growing number of tour groups wanting to serve them Elizabeth Dilts
A
lmost every year for more than a decade, tour group operator Carson Zhang guided a delegation of about two dozen Chinese government officials from Guangdong province’s Forestry Administration for a two-week trip through the national parks of California, Tennessee, and Georgia. Along with presentations about forest fires and trail preservation, the officials enjoyed lobster and steak dinners, went to see Tennessee bluegrass musicians perform, and made a stop at one of Orange County, California’s shopping malls. Zhang’s company, American Carson International, catered almost exclusively to government tour groups from Guangdong province. But in the past couple of years, official tourism from there has been scaled back, and the forestry group has not visited the U.S. since 2012, Zhang said. Chinese President Xi Jinping’s crackdown on government corruption, which began almost two years ago, has had a profound impact in China itself. Luxury goods sales have suffered, officials now shun lavish banquets, and gambling revenues at casinos in Macau have been sinking. Even sales of boxes of cookies and cakes around holiday times have been hit. It is also hurting a specialized niche of the U.S. tourism industry.
In some parts of China there are new restrictions on the kinds of overseas travel by central and local government officials that will be allowed, according to officials in several Chinese cities and U.S. companies who handle travel arrangements for government trips. Often it isn’t a new rule that is proving to be a barrier but widespread fear that an overseas trip will attract the wrong kind of attention from the government teams investigating corruption. The probes have already led to the detention of thousands of officials and have a particular focus on those who may have moved suspicious amounts of money overseas. China’s state news agency Xinhua reported in January that the number of officials who travelled overseas for training approved by the State Administration of Foreign Experts Affairs fell by 32 percent in 2013. The body approves trips below ministerial level. International “training” trips, meant to help Chinese officials learn about business and government practices in other countries, are not only less frequent, they are also shorter and there is a lot less room for leisure time. One municipal tourism bureau from a mediumsized Chinese city needed its foreign affairs bureau’s approval to travel to the U.S. this year, said Haybina Hao, international development director for the National Tour Association, a travel trade
with Chinese regulations. She said she was not certain which year they had stopped. For many years after China first began opening up in the late 1970s, much of the tourism to the U.S. and other countries was from official delegations, and a cottage industry of tour operators grew up to serve them. Groups of officials would often have a relatively light official schedule, leaving plenty of room for sightseeing and trips to shopping malls, restaurants, and casinos. The tour operators would often get commissions from planning Cottage industry such excursions. At the Guangdong Forestry “In the past, most of these Administration, a section trips have been one day of chief who would only give official business and 10 days her surname, of travel,” said Sage T a n , confirmed Brennan, co-founder that as of the Los regulations h a v e Angelesb a s e d tightened it is no longer consulting g r o u p sending L u x u r y officials on the twoC h i n a Advisors, week trip. w h i c h She said that consults there had in clients such the past been such training as luxury retailer visits that Bergdorf had involved Goodman traveling and the Los through Sage Brennan, Angeles California, Luxury China Advisors Tourism and Tennessee co-founder Convention and Georgia and that they Board on how to attract had always Chinese complied
group based in Lexington, Kentucky that recommends tour managers. Their review is still pending, Hao said. But if they are approved, their trip – they are only allowed one this year – must last less than eight days, Hao said. Take away two days for travel and that is not a lot of time, she said. “Which is exactly the intention of the Chinese government,” Hao said. “They don’t want [officials] to spend excessive public funds.”
In the past, most of these trips have been one day of official business and 10 days of travel
consumers. “Those kinds of trips have disappeared.” Brennan estimates officially sanctioned Chinese government travel to the U.S. fell by as much as 90 percent in the first half of 2013, and hasn’t recovered much since. Some hoteliers in New York have seen a drop off in Chinese government guests. The Sheraton LaGuardia located in Flushing, Queens, New York City’s biggest and fastest growing Chinatown, had several official delegations cancel their reservations in October, said Karen Ng, head of sales for the hotel. In recent years, the balance has swung more towards private tour groups and even individual tourism as the number of people with the private means to travel soars along with China’s economy. It means that while the drop off in official trips may be hurting some tour operators and hotels, the overall impact is more than offset. Indeed, Chinese tourists visiting the U.S. in July 2014 jumped 22 percent over July 2013, according to the latest figures from the U.S. Department of Commerce. China’s luxury jet-set take on average three international trips a year, according to the Nielsen Mainland Chinese Luxury Shopper survey. Chinese consumers of luxury products also spend three times as much abroad as they do at home, a Bain & Company 2014 global luxury report found. Reuters
Business Daily | 7
November 18, 2014
Stocks
HK stocks fall most in month as exchange link debuts The Bank of China Macau Branch announced it would provide trading services under Shanghai-Hong Kong Stock Connect for customers to trade SSE A shares via online and phone banking
H
ong Kong Exchanges & Clearing Ltd dropped the most in three weeks as a quota for mainland investors to buy the city’s stocks through the Shanghai exchange link debuting yesterday went largely unfilled. Hong Kong Exchanges fell 4.5 percent to HK$178.10 at the close, leading declines on the Hang Seng Index. The bourse operator pared its gain to 35 percent since Premier Li Keqiang unveiled plans for the stock connect on April 10. Haitong Securities Co, China’s second-largest brokerage, slid 6.1 percent yesterday, while China Galaxy Securities Co sank 5.1 percent. The Hang Seng Index lost 1.2 percent. About 17 percent of the RMB10.5 billion (US$1.7 billion, HK$13.3 billion) daily quota for mainland investors buying Hong Kong shares was filled, compared with the entire RMB13 billion limit for international investors purchasing China shares being utilized, according to exchange data compiled by Bloomberg. “People were a little bit overexcited about the quota,” Eliot Li, director of corporate development, sales and marketing at First Shanghai Financial Holding Ltd, said by phone. “I guess there were some buy orders in the morning that were being cancelled or reconsidered. At this moment, the pace of the quota dropping slowed down a little bit. Most of the orders are coming from individuals instead of corporates.” The start of the ShanghaiHong Kong exchange link yesterday gave foreign
investors unprecedented access to China’s US$4.2 trillion stock market. The program allows a net RMB23.5 billion of daily cross-border purchases. China will temporarily waive capital gains tax for foreign investors buying mainland equities through the connect, according to a statement released by the Finance Ministry last week. Around 81 percent of brokers surveyed by Bloomberg News last Friday predicted the quota for Shanghai shares would be used up on the first day. Half of those surveyed forecast the same result for Hong Kong purchases. “This is the primary
WHAT IS THE AIM OF THE SCHEME? The Shanghai-Hong Kong stock connect scheme gives China a controlled mechanism to open up its equity capital markets, allowing foreigners to access mainland China’s ‘A’ shares through the Hong Kong exchange (HKEx), and for mainlanders to access Hong Kong shares through the Shanghai exchange, subject to quotas. HOW DOES IT WORK? Trading of Shanghai shares via Hong Kong will be open to all Hong Kong and overseas investors – institutions and individual – while trading of Hong Kong shares via Shanghai will be open to all mainland institutions and individuals with at least RMB500,000 (US$80,000, HK$632,800) in a trading account. Investors in Hong Kong and abroad will trade through a Hong Kong
vehicle for China to take the next step to opening up its capital market to the rest of the world,” Mark Matthews, the Singapore-based head of Asia research at Bank Julius Baer & Co, which oversees about US$286 billion, said by phone. “It’s a positive move for the long term.”
Shanghai’s 10-fold increase Shanghai stock purchases through China’s exchange link exceeded buying of Hong Kong shares by more than 10 times in the first hour of trading. International investors bought RMB8.7 billion (US$1.4 billion) of the
broker which will send the order to HKEx, which then passes it to Shanghai. The process is mirrored when mainland participants trade Hong Kong shares. Shanghai shares remain in Shanghai and are held in trust by a broker or custodian on behalf of the foreign investors. Hong Kong shares remain in Hong Kong, and are held in trust by a broker or custodian on behalf of mainland Chinese investors. Purchases of mainland stocks are capped at RMB13 billion a day and RMB300 billion in total on a “firstcome, first-served” basis. The Hong Kong stock limits are RMB10.5 billion daily and RMB250 billion overall. Market participants expect the quota to be lifted gradually. WHAT DOES IT MEAN FOR CHINA’S OFFSHORE YUAN POOL? The offshore pool of yuan
RMB13 billion daily quota of Shanghai shares as of 10:24 a.m. local time, according to exchange data compiled by Bloomberg. Mainland investors purchased just RMB848 million of their RMB10.5 billion limit. When the daily quotas are used up, buying through the program is halted for the day. Yesterday’s debut of the bourse link marks one of China’s biggest steps toward opening up its capital account, increasing global use of the yuan and turning Shanghai into an international financial center. The quota system, which caps aggregate net purchases at RMB300 billion in Shanghai and RMB250
deposits in Hong Kong may see some depletion initially as investors snap up A-shares on the mainland. But recent measures by the central bank including relaxation of yuan conversion limits and establishing intraday repo facility is expected to ease any shortage concerns. WHAT ARE THE IMPLICATIONS FOR CHINA’S CAPITAL MARKETS? In the short term, the scheme is expected to generate a surge in Hong Kong trading volumes and a smaller impact in Shanghai. Analysts say it has the potential to create the world’s third-largest stock market if the two boards are fully integrated. Hong Kong’s average daily turnover is about RMB30 billion, and Shanghai’s about RMB71 billion, Goldman Sachs estimates. In the long term, some analysts believe this scheme can
billion in Hong Kong, allows Chinese authorities to retain some control over crossborder money flows even as they broaden access to the biggest emerging market. “It looks like overseas investors favour the stocks without Hong Kong listings,” Dai Ming, a money manager at Hengsheng Asset Management Co in Shanghai, said by phone. “There isn’t much enthusiasm toward the Hong Kong stocks, and the problem is that local investors aren’t quite familiar with trading rules in Hong Kong.” The Shanghai Composite Index climbed less than 0.1 percent, while the Hang Seng Index of Hong Kong shares fell 0.8 percent. The link allows any global investor with a Hong Kong brokerage account to buy a selection of Shanghai shares, expanding access to 24-year-old market from a small number of foreign institutional money managers. Mainland traders with at least RMB500,000 in their accounts are eligible to purchase Hong Kong shares through the connect. Shanghai shares in the SSE 180 Index and SSE 380 Index are eligible, along with constituents of the Hang Seng Composite LargeCap Index and Hang Seng Composite MidCap Index in Hong Kong. Stocks with dual listings are also included. The Shanghai Composite advanced 17 percent this year through last week amid optimism the exchange link will attract fund inflows. That compares with a 3.4 percent gain in the Hang Seng index. Bloomberg
be rolled out to other asset classes and exchanges like Shenzhen. WHAT IS THE NEXT BIG THING TO WATCH FOR CHINA EQUITIES? If successful, the scheme could expedite the inclusion of Chinese stocks on global benchmarks including the MSCI Emerging markets index, which could prompt global funds to plough more than US$300 billion into China shares, analysts estimate. WHAT ARE SOME OF THE OUTSTANDING ISSUES? Shanghai requires shares to be delivered to a broker a day before sale, which foreign institutions fear could signal their intentions to the market. The Hong Kong exchange is working on a fix that it expects to be ready by the middle of next year.
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November 18, 2014
Greater China Cutting fees to foster business China will cut roughly 40 billion yuan (US$6.5 billion) a year in taxes and fees as part of an effort to stimulate the slowing economy, the State Council said. Starting January 2015, the government will scrap 42 administrative fees and 12 business registration fees, measures specifically tailored to relieve burdens on small businesses, according to the State Council. Businesses with monthly sales of less than 30,000 yuan will be exempt from five additional charges for the next three years, according to the State Council, which additionally said it would target pricing reforms to promote competition in the energy.
Massive railway lines investment China has approved construction of five railway projects worth 152.7 billion yuan (US$24.93 billion), the country’s top economic planning agency said, the latest sign that the government is lifting investment to tackle slackening economic growth. The plans to build the new passenger lines came after China’s recent move to spend US$113 billion to build railways and five airports. The infrastructure projects should foster investment, the biggest driver in the world’s second-largest economy, which has sagged this year as a cooling manufacturing sector and a softening housing market discouraged spending.
China, N.Z., U.S. sign deal in Auckland A three-way trade and economic agreement spanning major cities in southern China, the United States and New Zealand is already mulling proposals for city-to- city collaboration, the mayor of New Zealand’s biggest city said yesterday. The Tripartite Economic Alliance between Auckland, Guangzhou and Los Angeles, which was signed Sunday in Guangzhou, was the centrepiece of celebrations to mark the 25th anniversary of Auckland’s sister city relationship with Guangzhou, said Auckland Mayor Len Brown.
Two Sinopec pipelines closed
Two short crude oil pipelines in China operated by Sinopec Group are shutting temporarily due to worries over safety, Chinese authorities said. Sinopec has been ordered to shut the 179-km Linyi-Cangzhou pipeline and a 40-km pipeline from the Tanggu oil depot to Dagang in Tianjin by November 20, the State Administration of Work Safety said on its website late last week. Authorities said that unannounced inspections had found numerous problems, including “stress corrosion and fatigue damage”. Refinery throughput in northern China had not been affected.
Tighter credit is new status quo in post-Qingdao era The lending clampdown has exacerbated a credit shortfall in the world’s biggest buyer of most commodities Melanie Burton
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hina’s metals industry is grappling with tougher credit conditions that are likely to persist and spark consolidation after a portside financing scandal roiled the market, said an executive at one of the world’s biggest commodity traders. Simon Collins, head of metals and minerals at Trafigura, said that miners, smelters and fabricators were facing a harder time getting credit since the Qingdao scandal broke in June. “A lot of people in the industry are finding it difficult ... that is the new status quo and it will bring about further consolidation,” he told Reuters in an interview. Chinese authorities launched an investigation into whether a private metals trading firm had used fake warehouse receipts at Qingdao, the world’s seventh-busiest port, to obtain multiple loans against a single metal cargo. More than US$1 billion in claims are now being pursued. Banks have tightened risk controls, curbing access to credit and squeezing metals trade. “The credit review process has been very stringent by the top five banks and the second tier banks, which has impacted people in two ways: either because it’s taken a longer time to renew their credit lines, or their credit lines are being cut.” The lending clampdown has exacerbated a credit shortfall in Containers harbour in Qingdao
the world’s biggest buyer of most commodities, amid slowing growth and since big Western banks like Deutsche and Barclays ditched their commodity divisions in the past year. Trade houses have stepped in to fill the gap as banks have instead diverted some liquidity towards the more lightly regulated industry. “You’ll find that trading houses have very good access to liquidity and access to markets, so that gives them an opportunity in an environment in which there are cash flow issues.” Syndicated loans taken out by Trafigura, Glencore and Noble more than doubled to over US$45 billion in 2013 from 2011, according to data compiled by Thomson Reuters LPC. In the wake of the Qingdao scandal, Trafigura unit Impala signed a deal with a subsidiary of China’s largest investment bank to set up a joint warehousing and logistics unit in China.
Evaporating expectations While expectations of a copper surplus this year have evaporated, Collins still sees oversupply in 2015, albeit less than some have predicted. Chinese copper refineries have generally been running below capacity due to a scrap metal shortage, while demand may remain reasonably strong given supportive infrastructure policies, he said.
KEY POINTS Tough credit hitting China metals industry -Trafigura Could spark consolidation Expects copper surplus next yr, aluminium trade in focus
“The downside is that I don’t think we’ll see a huge amount of volatility in the copper market.” Instead, he said spread volatility in the aluminium market would be more of a feature due to a shortage of available metal. “It’s traditionally been the laggard which nobody wants to trade. It’s starting to look a lot more interesting,” he said. “Nickel I think is still interesting. The underlying story is unchanged, and that is one of raw materials shortage,” Collins added. Nickel prices spiked this year before erasing almost all gains after Philippine producers stepped up exports, plugging a gap opened when Indonesia banned ore shipments. Reuters
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November 18, 2014
Greater China Australia-China trade deal brings relief to coal miners The Minerals Council of Australia, which had pressed for zero tariffs on coal immediately, welcomed the deal
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landmark Australia-China free trade deal signed yesterday will delay the exemption of import tariffs on Australian thermal coal, giving Chinese miners a muchneeded buffer for local prices to recover, traders and analysts said. The memorandum of understanding, which Chinese President Xi Jinping signed on a state visit to Canberra, would eliminate a 3 percent coking coal tariff immediately and a 6 percent tariff on thermal coal within two years. The agreement will give Australian producers of coking coal, used in steelmaking, some help in riding out a two-year price rout. However, thermal coal producers face two years of the tariffs, that caught the market by surprise when they were introduced in October. In the long term, industry experts said mine closures in China and elsewhere were the only solution to tackling a crippling global supply glut that has already pushed prices to 5-1/2 year lows. “That is a superior deal to that provided under the ASEAN-China FTA which phased coal tariffs out
over four years,” Council CEO Brendan Pearson said in a statement. Traders said the tariff relief on metallurgical coal was set to boost Australian orders, potentially even displacing some shipments from Mongolia, as local suppliers were more expensive. China’s imports from Australia, which supplies almost half of China’s total coking coal imports, reached 20.87 million tonnes in the first 10 months of 2014, while secondranked supplier Mongolia shipped 10.7 million tonnes. “For anyone in the met coal business this is a significant relief for them,” said James Rickards, spokesman for Yancoal Australia Ltd. With some 70 percent of its miners in the red, Beijing has rolled out a string of support policies, including import tariffs and cutting ancillary fees. Trade sources said Beijing is also considering a proposal to cut coal export taxes to 3 percent from the current 10 percent to give its oversupplied market a potential sales outlet. Reuters
Key elements of Australia-China free trade deal
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ustralia sealed a landmark free trade agreement (FTA) with its top trade partner China yesterday, concluding a decade of negotiations. Once the framework of the deal signed by Australian Prime Minister Tony Abbott and Chinese President Xi Jinping in Canberra is fully implemented, 95 percent of Australia’s exports to China will be tariff free. The following is a look at key elements of the deal, the most extensive signed by China with another country, according to Abbott. AGRICULTURE Dairy: removal of all tariffs of up to 20 percent in four to 11 years. Beef: removal of tariffs of 12 to 25 percent over nine years. Wine: removal of all tariffs, 14 to 20 percent, over four years. Horticulture: removal of all tariffs up to 30 percent in four years. Wool: Australia-only duty free quota. Cotton, rice, sugar wheat: review in three years. Live animal exports: removal of tariffs of 10 percent in four years. RESOURCES Coking coal: removal of 3 percent tariff from start of FTA. Thermal coal: removal of 6 percent tariff in two years. Copper: removal of tariffs, 1 to 2 percent, from start of FTA. Alumina: removal of 8 percent tariffs.
SERVICES Health: Australian owned hospitals and aged care facilities allowed to be established in China. Tourism: Australian operators allowed to build and operate hotels and restaurants in China. Financial: Yuan clearing bank designated in Sydney allowing overseas trading of China’s currency for the first time. INVESTMENT Chinese private direct investment in Australia under A$1.08 billion (US$945 million) will not require approval from the Foreign Investment Review Board (FIRB), brings into line with United States and Japan. FIRB approval still required for agricultural land over A$15 million and agribusiness over A$53 million and for all investment in media, telcos, defence. FIRB approval still required for investment by state-owned enterprises. WORKFORCE Chinese-owned companies registered in Australia allowed to negotiate projectbased labour agreements for infrastructure development projects worth more than A$150 million. A Work and Holiday visa to be granted to up to 5,000 educated Chinese nationals each year, allowing them to holiday in Australia for up to 12 months, as well as undertake short term work and study. Reuters
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Greater China
Aussie importers to enjoy Sydney yuan hub Trading patterns in currencies show Australia has more to gain than most other developed economies from an accord on the yuan, or renminbi, as it is also known
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hina is giving Australia more access to its capital markets and allowing it to clear yuan trades, measures that would boost Beijing’s efforts to free Chinese financial markets and promote global usage of its renminbi currency. Under the Renminbi Qualified Foreign Institutional Investor, or RQFII scheme, Australian investors have been given the right to invest up to 50 billion yuan (US$8.2 billion) in the capital market in mainland China. The ability to exchange Australian dollars directly into yuan, rather than first converting them into the U.S. currency, will save companies as much as 7 percent on deals with China, according to HSBC Holdings Plc. Chinese investment into Australia has the potential to increase seven times to almost US$300 billion by 2020, Westpac Banking Corp. estimates. “We would expect to see a surge in yuan-Aussie trading and increased capital flows that would help deepen the already extremely strong trade relationships,” Robert Rennie, Westpac’s head of currency and commodity strategy in Sydney, said in a November 13 phone interview. Westpac was one of two local banks approved as market makers in China for Aussie-yuan trading last year in a step toward a broader agreement. China is Australia’s biggest trading partner, supplying 20 percent of the nation’s US$256 billion of imports and buying more than 35 percent of its exports last year, based on data from the International Monetary Fund. Sydney would follow cities from London to Singapore that have established centres for dealing the yuan, which in 2013 surpassed the euro as the most widely used currency in trade finance after the U.S. dollar.
The correlation between the socalled Aussie-U.S. dollar exchange rate and the dollar-yuan rate is the highest after the yen among the Group of 10 currencies, data compiled by Bloomberg show. The relationship has increased to 0.91, from about zero two years ago, as Australia deepened its trading ties with the world’s secondlargest economy. A figure of 1 would mean the two were moving in lockstep; minus 1 would mean they were moving in opposite directions.
Transparent prices “If an importer in Australia is willing to settle in renminbi, they will strengthen their relationship with the Chinese supplier and get greater transparency on pricing,” Vina Cheung, who heads a unit working on the internationalization of the yuan at HSBC in Hong Kong, said November 13. China, whose hunger for raw materials fed Australia’s record mining boom in recent years, is also the biggest source of goods imported by the South Pacific nation. Australia boosted imports of Chinese products by 14 percent to a record A$4.8 billion (US$4.2 billion) in September, with its biggest purchases comprising electronics, toys and clothing. Chinese buyers are fuelling a jump in Australian house prices, overtaking Americans to become the biggest purchasers of real estate in the year through June 2013, official data show.
Yuan’s rise For China, a deal would help in its efforts to bolster the yuan as a currency of global trade. It has
April 2013, with 2.2 percent of global foreign-exchange deals, from a negligible showing in 2001, according to the latest triennial survey by the Bank for International Settlements in Basel, Switzerland.
Growing role
Australia’s trade numbers overstate the immediate benefits of direct yuan settlement because much of the materials involved are commodities and those are priced in U.S. dollars Daniel Been, Australia & New Zealand Banking Group, strategist
signed agreements with Hong Kong, Taipei, Singapore, Paris and Seoul, and Frankfurt started clearing trades in the Chinese currency yesterday. Part of China’s plan to burnish the yuan’s image has involved loosening its grip on the exchange rate. That helped the yuan to become the only currency to strengthen versus the U.S. dollar since mid-year, climbing 1.2 percent and extending its more than 10 percent advance over the past five years. The yuan grew to become the ninth most-traded currency as of
The Aussie’s status increased in step with the yuan’s, and accounted for 8.6 percent of currency deals last year, twice the figure in 2001. Yuan trades may jump to US$262 billion a day in 2018, from US$120 billion in the BIS survey, Westpac estimates. About 15 percent of all exchange-rate transactions will go through China by 2030, the Sydneybased lender predicts. That would still be less than London’s 40 percent share and the U.S.’s 18 percent in the 2013 BIS survey. The yuan’s role is also limited for now by the prevalence of the U.S. dollar as the currency of choice for pricing raw materials. A currency pact and other accords would give Australia the chance to offer financial services to China businesses and investors, according to Westpac and HSBC. That may lead to yuan- denominated, or dim sum, bonds being sold to Australian investors. “A currency hub will be very beneficial for the Australian banking sector,” Sean Keane, an Aucklandbased analyst at Triple T Consulting, said by phone on November 13. “Exposure to China has been growing and that’s been a very positive development for Australia. From China’s point of view, it would remove part of the world’s reliance on the U.S. dollar, and that’s something the authorities have been pursuing.” Bloomberg News and Reuters
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Asia
Japan slips into surprise recession On a quarter-on-quarter basis, the economy shrank 0.4 percent in the third quarter, following a contraction of 1.8 percent in the second quarter
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apan’s economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election half-way through his term. Gross domestic product (GDP) fell at an annualised 1.6 percent pace in July-September, after it plunged 7.3 percent in the second quarter following a rise in the national sales tax, which clobbered consumer spending. The world’s third-largest economy had been forecast to rebound by 2.1 percent in the third quarter, but consumption, and exports remained weak, saddling companies with huge inventories to work off. Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent in October next year, as part of a plan to curb Japan’s huge public debt, the worst among advanced nations. Japanese media have said the prime minister, who was returning from an Asia tour yesterday, could announce his decision to delay the hike as early as today and state his intention to call an election for parliament’s lower house, which ruling party lawmakers expect to be held on December 14. An economic adviser to Abe termed the economic slide “shocking,” and urged the government to consider steps to support the economy. “This is absolutely not a situation in which we should be debating an increase in the consumption tax,” Etsuro Honda, a University of Shizuoka professor and a prominent outside architect of Abe’s reflationary policies, told Reuters. No election for parliament’s powerful lower house need be held until late 2016, but political insiders say Abe wants to lock in his mandate
KEY POINTS GDP shrinks annualised 1.6 pct in July-Sept Abe to look at data ahead of final decisions on tax rise Abe expected to announce election for Dec. 14
while his ratings are still relatively robust, helping him push ahead with economic and other policies such a controversial shift away from Japan’s post-war pacifism. Facing a divided and weak opposition, Abe’s Liberal Democratic Party (LDP) is expected to keep its majority in the lower house, but it could well lose seats. As election talk heated up last week, a poll by NHK public TV found that Abe’s voter support had fallen 8 percentage points to 44 percent from a month earlier. A senior LDP lawmaker said the data made Abe’s decision to postpone the tax hike certain and that he expected the premier to call a snap poll, arguing that his “Abenomics” strategy to re-energise the economy was working but needed more time. Even before the GDP announcement, Abe appeared to suggest he was leaning toward delaying the tax hike, telling reporters travelling with him in Australia that raising the tax rate would be meaningless if deflation returned. The LDP, its smaller ally and the then-ruling Democratic Party enacted the legislation requiring
Japan’s Prime Minister Shinzo Abe during last weekend’s G20 meeting in Brisbane, Australia. He could announce election for December after his return
the tax to be raised unless economic conditions were judged too weak. Economy Minister Akira Amari said the GDP data showed the April hike to 8 percent from 5 percent had made it harder than anticipated for the public to shake off their deflationary mind-set. Household spending is stagnating,
with housing investment and corporate capital spending down, Amari said, while finding a bright spot in strong corporate profits. Private consumption, accounting for about 60 percent of the economy, rose 0.4 percent from the previous quarter, half as much as expected. Reuters
Thailand trims outlook as Q3 GDP slower The economy avoided a technical recession but the pace of recovery has been slow Orathai Sriring and Kitiphong Thaichareon
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hailand’s economy grew much less than expected in the July-September quarter as exports contracted, forcing the authorities to again cut the country’s growth forecast for the year. The weak outlook has raised new doubts the junta can quickly turn the economy around even after pledging to roll out infrastructure spending and other measures to boost consumption. Southeast Asia’s secondlargest economy grew 1.1 percent in the third quarter on a seasonally-adjusted basis from the prior three months, and 0.6 percent from a year earlier, the state planning agency said yesterday.
Thailand Prime Minister Prayut Chan-o-cha looks for his seat during the 12th ASEAN India Summit at Myanmar International Convention Center in Naypyitaw, Myanmar, 12 November
A Reuters poll of economists had forecast quarterly growth of 1.8 percent in July-September, and annual growth of 1.0 percent.
The army seized power on May 22 in a bid to end the crisis and kick-start the sputtering economy, but progress has been limited so far.
The economy suffered virtual paralysis in policymaking before the army took over. Badly hit sectors such as tourism are recovering only slowly. Economists say there is a greater possibility of looser policy in the months ahead. “The relatively soft momentum in the 3Q GDP report will add further weight to the argument that Bank of Thailand should ease again,” said Benjamin Shatil, economist with JP Morgan in Singapore. “However, it is not clear to us that another 25 bp cut will have much of an effect in terms of stimulating activity, and we continue to look for government spending to
support growth momentum into 2015, alongside a modest turn up in exports”. The central bank next reviews its policy rate on December 17 after keeping it steady at 2 percent since March. The National Economic and Social Development Board (NESDB) on Monday trimmed its 2014 growth forecast again to 1.0 percent from 1.5-2.0 percent. That would be the weakest growth since 2011, when devastating flooding cut growth to 0.1 percent. But the agency revised up growth in April-June from the previous three months to 1.1 percent from 0.9 percent. Reuters
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Asia Singapore’s exports down Non-oil domestic exports (NODX), a key gauge of the export performance of the small and highly open economy, declined by 1.5 percent in October on year, trade promotion agency International Enterprise Singapore said yesterday. The drop was due to a decrease in both electronic and non- electronic exports, the agency said. On a yearly basis, electronic exports contracted by 3.6 percent in October, after the 4.0 percent decline in the previous month. The decrease was largely due to parts of ICs, PCs and consumer electronics. Non-electronic exports contracted by 0.5 percent in October.
NZ services expansion sees growth Jobs growth in New Zealand appears to be accelerating outside the thriving construction sector and earthquake-battered Christchurch, according to the latest performance of services index (PSI) out yesterday. The BNZ-Business New Zealand PSI for October was 57.8, on a scale where above 50 indicates expansion and below 50 contraction. While the level was 0.2 points down from September, index had remained consistent for the last four months, indicating healthy activity, and had averaged 56.8 in the year so far, Business New Zealand chief executive Phil O’Reilly said in a statement.
Thai 4G auction by Sep 2015
Thai telecoms regulator plans to hold an auction for fourth-generation (4G) mobile phone spectrum by September 2015 after a one-year postponement by the military government. The regulator may increase the starting price of the auction to reflect changing economic conditions, Settapong Malisuwan, vice chairman National Broadcasting and Telecommunications Commission, told reporters over the weekend.
Toray to supply carbon fibre to Boeing Japan’s Toray Industries said it will sign a 1 trillion yen (US$8.6 billion) deal to exclusively supply Boeing Co with carbon fibre to build the wings of the new 777X passenger jet. The Japanese company, which already fabricates the carbon fibre used in Boeing’s 787 Dreamliner, will announce the agreement at a news conference in Tokyo yesterday, a spokesman for the company said. The deal period spans more than 10 years, the spokesman said.
India urges higher pay for millions of Gulf workers India’s role as a top labour supplier means its drive cannot be totally ignored by recruiters
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ndia is pressing rich countries in the Gulf to raise the wages of millions of Indians working there, in a drive that could secure it billions of dollars in fresh income but risks pricing some of its citizens out of the market. Over 5 million Indian nationals are believed to be employed in the oil exporting states of the Gulf, the single largest group in a migrant worker population of more than 20 million. So India’s campaign for much higher pay could have an impact on economies around the region, especially if it leads to a general increase in wages for workers from other big labour-supplying countries such as Pakistan and Bangladesh. Over the past seven months, Indian diplomats in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the United Arab Emirates have sharply increased the minimum salaries that they recommend for Indian workers at private and public firms in those states. “We want the Indian workforce to be paid higher salaries. Inflation, the value of the Indian currency
Oil and gas industry employs greatest number of Indian workers in the Gulf region
and a rise in the cost of living in the Gulf were the factors that led to the decision,” Y.S. Kataria, a spokesman for the Ministry of Overseas Indian
Affairs (MOIA) in New Delhi, told Reuters. The success of India’s strategy is not yet clear, however. Officials
Indonesia hopes Total can show Pertamina the world The government hopes to leverage a partnership between the two energy firms to expand the country’s resource base Fergus Jensen
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ndonesia is pushing Total to help state energy company Pertamina expand on the global stage, in return for partnership in the Mahakam gas block after the French firm’s operating contract expires in 2017. Indonesia is one of the world’s biggest liquefied natural gas exporters, but with domestic output slipping and local demand growing the country has begun consuming more of its natural gas and is seeking overseas supplies. Total’s contract to operate the Mahakam block is one of numerous oil and gas contracts due to expire under uncertain terms, a stumbling block that the new government of Southeast Asia’s largest economy has promised to address quickly.
This year, the French energy company expects Mahakam, Indonesia’s top gas-producing block, to produce a daily average of 1.7 billion cubic feet of gas (bcfd), down slightly from 1.76 bcfd last year. With state energy company Pertamina pushing for control of Mahakam, the government hopes to leverage a partnership between the two energy firms to expand the country’s resource base, said Energy Minister Sudirman Said. “We will use this opportunity to expand Pertamina’s access to resources not just domestically but also overseas,” Said told reporters. “We will invite Total or whoever finishes this: ‘Let’s work together, but can you take Pertamina with
you to where you operate?’” The minister said he was targeting a decision on the matter within three months. According to the Energy Ministry Performance Supervision Unit chief Widhyawan Prawiraatmadja, there were technical issues that needed to be ironed out before the proposal could fly. “Can the investment continue? Will there be a return on investment or not?” Prawiraatmadja said, adding that details on what Pertamina wanted from Total needed to be clarified. “This process needs time.” A spokesman for Total E&P Indonesie was not immediately available for comment. Reuters
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November 18, 2014
Asia KEY POINTS Could add billions of dollars to Indian remittances But risks backlash among Gulf officials, companies Gulf construction firms may face jump in costs Other labour-exporting countries may benefit
in at least some GCC nations have expressed displeasure, and the strategy could backfire if those countries end up hiring more workers from elsewhere in the world.
Pressure The Indian government cannot dictate the pay of its citizens in the Gulf - decisions to hire workers are made by labour recruiters in individual countries, which have not set minimum wages for migrants and usually prohibit union activity by them. However, the recruiters must rely on the co-operation of local authorities to operate in India. An internal memorandum prepared by the MOIA, sent last month and seen by Reuters, says that if workers
are offered wages below specified minimums, ministry officials “would deny emigration clearance”. In Saudi Arabia, the Indian embassy lifted the recommended minimum salary posted on its website to 1,200 riyals (US$320) a month earlier this year from 670 riyals. In the UAE, the minimum wage for Indian blue-collar workers rose to 1,500 dirhams (US$409) in recent weeks from 1,200 dirhams last year, Jindran said. India’s role as a top labour supplier means its drive cannot be totally ignored by recruiters, and it could have a big impact in some countries and industries. But there may be a backlash. Another MOIA official said India’s pay demands had met initial resistance in all six GCC countries, while two of the countries had threatened to reduce their Indian workforces and hire more, lowerpaid workers from Bangladesh and Nepal instead. If India’s efforts to secure higher pay succeed, they could boost its economy, because migrants send much of their pay home. India received US$69 billion as remittances in 2012; a 2010 central bank study found Gulf nations accounted for 31 percent. Higher wages could also impact many companies. Fawwaz alKhodari, chief executive of Saudi builder Abdullah Abdul Mohsin alKhodari, said profits in the sector might be squeezed by demands from governments of some labourexporting countries. Reuters
Adani’s project in Australia gains support Adani came to Brisbane with a business delegation from India for the G20 summit, which Modi attended over the weekend
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dani Enterprises won support yesterday from the Indian government and an Australian state to help it build a US$7 billion coal mine, rail and port project, defying a slump in coal prices to 5-1/2 year lows that has stalled rival projects. The Indian trading and infrastructure conglomerate signed a memorandum of understanding to line up a loan of up to US$1 billion from the State Bank of India for the Carmichael mine in Queensland, which it aims to build by the end of 2017. “The MOU with SBI is a significant milestone in the development of our Carmichael mine,” Adani Group Chairman and founder, Gautam Adani, who has close ties with Indian Prime Minister Narendra Modi, said in a statement, following a signing in Brisbane. The company also won a commitment from the state government to take short-term, minority stakes in rail and port infrastructure needed to unlock massive coal reserves in the untapped Galilee Basin. Coal from the region must be sent 400 km by rail to Australia’s east coast.
No final investment decision has been made on the Carmichael project. Australia’s federal and Queensland governments are eager to see the mine built following the loss of more than 4,000 coal jobs over the past two years, but analysts and project finance experts believe Adani may have underestimated the challenge of raising funds for the project. Adani, which is also facing a campaign by anti-coal campaigners, is counting on lining up funding from South Korea, having named POSCO Engineering & Construction Co Ltd as the preferred contractor to build its rail line. Adani’s apparent momentum on the Carmichael project is in stark contrast to rival Indian firm GVK’s slow progress on another huge coal mine in the Galilee Basin, the Alpha project, which is co-owned by Australian billionaire Gina Rinehart. Much bigger coal rivals, like BHP Billiton and Glencore, have also shelved coal developments in Queensland at a time when a third of Australia’s coal output is making losses. Reuters
Korea car market cracks under German luxury barrage The value of imports from Europe was up 60 percent to US$4.6 billion in the first nine months of 2014 against exports of US$4.4 billion
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outh Korea is on track to spend more on vehicle imports from Europe this year than it earns from exports the other way, for the first time in 24 years, as German brands breach the once impregnable fortress of Hyundai Motor and its local rivals. The turnabout follows a 2011 free trade deal eliminating duties on vehicles from Europe, and as tastes change in a market once so patriotic that foreign cars were sometimes targeted by vandals.
The driving force of imported cars has been diesel engines, younger customers in their 30s and luxury brands Yoon Dae-sung, official at the auto importers association
Imports made up 3 percent of cars sold in South Korea a decade ago and now account for a record 14 percent. German cars make up 71 percent of foreign cars sold in South Korea this year, led by luxury marques BMW and Daimler AG’s Mercedes-Benz. A free trade deal agreed last week with China excluded cars, to the relief of local automakers, staving off a potential influx of Chinamade German-branded vehicles and helping to preserve South Korea’s status as one of few markets where domestic automakers hold a dominant share - for now.
Gangnam style In Gangnam, the epicentre of the foreign car boom, a Volkswagen store does not have enough vehicles to sell. As well as the support of patriotic consumers, Hyundai, its sister firm Kia Motors and others such as Ssangyong Motor Co Ltd were once protected by 50 percent import tariffs. In the early 1990s, when South Korea had a more protectionist industrial policy, some consumers shunned foreign cars for fear of being targeted for
Hyundai has produced new hybrid models to compete against “German invasion”
tax audits. Trade deals have helped South Korea emerge as a source of growth for global brands, which are expanding offerings from big vehicles to smaller ones, threatening to further erode the nearly 70 percent market share held by Hyundai and Kia. In August, BMW opened a US$64 million driving centre in Incheon, its first in Asia,
allowing visitors to test-drive BMW and Mini cars on a 2.6-km track. Japan’s Toyota Motor, which imports its Camry sedan to South Korea from the United States, last month opened a cafe and showplace in Seoul that displays but does not sell its Lexus cars - part of efforts to raise its brand image. In the first 10 months of
2014, foreign car sales in South Korea rose 33 percent; Hyundai sales rose 3 percent. Hyundai is fighting back. Last month it launched its Aslan premium sedan, a rare model targeted mainly to local buyers, and recently opened a flagship store in Gangnam. Hyundai and Kia are also expanding their diesel and hybrid offerings. Reuters
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November 18, 2014
International Israel economy shrinks 0.4 pct Israel’s economy contracted for the first time in more than five years in the third quarter, as growth was hit by the effects of a war with Islamist militants in Gaza. Gross domestic product fell 0.4 percent in the July-September period, the Central Bureau of Statistics said. It was the first quarterly decline since a 0.2 percent drop in the first three months of 2009, at the outset of the global financial crisis. “We are talking about a one-time result and will not have a long-term impact,” the Finance Ministry said in a statement.
BoE mulls bankers’ fixed pay rule Regulators may need to look at new rules to control the fixed pay of bankers as well as their bonuses so that it can be clawed back in the event of wrongdoing, the governor of the Bank of England said yesterday. Developed economies have brought in a series of reforms to financial sector bonuses in recent years, bringing in laws to defer when they are paid and the ability to take them back in the event of banker misconduct or excessive risk taking.
Facebook developing a professional site Facebook Inc is secretly working on a new website called “Facebook at Work” that would allow users to keep their personal profile separate from their work profile, the Financial Times reported. The new website, that will look very much like Facebook, will compete with professional social network LinkedIn Corp , Google Inc, and Microsoft Corp, the newspaper said. Facebook’s new site will allow users to chat with colleagues, connect with professional contacts and collaborate over documents, the newspaper reported, citing unidentified sources.
Nigeria to lower oil benchmark Nigeria plans to lower its assumed benchmark oil price for next year’s budget by US$5 per barrel to US$73 and use reserves to meet on-going government spending, its finance minister said. Ngozi Okonjo-Iweala said a six percent drop in oil revenues following a world crude price decline would require the government to cut non-essential spending and raise more revenue. She said the revised medium-term expenditure plan, which is used in preparing the budget and must be approved by lawmakers, would keep the 2015 oil production projection at 2.27 million barrels per day, down from 2.38 million in 2014.
U.S. military fights budget woes Short of funds, and awash in global challenges, the U.S. military-industrial complex is betting on robotics and other new technologies to stay ahead of rapid advances in weapons development by China, Russia and other potential foes. But with budgets already under pressure and deeper cuts looming in fiscal 2016, it remains uncertain if the Pentagon can win support in Congress to speed up the acquisition process and turn the new technologies into game-changing weapons.
Dividend pay-out growth seen slowing in 2015 European dividends are expected to grow by 14 percent in 2014 Lionel Laurent
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lobal dividend pay-outs are expected to keep growing in 2015, albeit at a slower pace than previous years, according to a report by Henderson Global Investors published yesterday. The report pointed to an uncertain economic growth picture next year and said that one reason for slower growth would be the absence of Vodafone’s record US$26 billion pay-out from selling its Verizon Wireless stake. The report, which tracks dividends paid by the world’s top 1,200 listed firms, estimated that in 2015 global dividends would rise 4.2 percent to US$1.24 trillion, a slower rate than the 12.6 percent estimated increase for 2014 to US$1.19 trillion. “There are many uncertainties over the outlook for the world economy in 2015,” Henderson wrote in its report. “The rapid growth in European dividends in 2014 is unlikely to be
KEY POINTS Economic growth to be uncertain, UK divs to fall -Henderson Some European firms have cut dividends in recent months U.S. remains engine of dividend growth
repeated next year... We expect total dividends from the UK to be down by more than US$20 billion next year.” A rebound in corporate earnings in Europe since the financial crisis has led to stronger company balance sheets and rising pay-outs. European dividends are expected to grow by 14 percent in 2014, while the UK is seen posting 32 percent growth; these are among the best regional performances globally. There is, however, growing uncertainty over the uneven nature of the global recovery. Financial markets have been roiled by the diverging growth prospects in the United States, which is on track to tighten monetary policy next year, versus the ailing euro zone and Japan going into recession last quarter. Investors have been lured to
dividend-yielding stocks with the promise of safe, bond-like returns in an era of zero interest rates but there have been examples of firms moving to cut their dividends in recent months. UK retailer Tesco cut its dividend earlier this year in an increasingly competitive environment after two profit warnings; rival J Sainsbury followed suit last week. The capacity of the energy sector to keep gushing cash has also been called into question by oil’s recent plunge in prices to a four-year low and belt-tightening by oil majors. That said, the U.S. remains the “main engine” of dividend growth, according to Henderson, citing it as one region set to deliver a “solid” pay-out growth in 2015. Reuters
Pfizer to buy Merck KGaA cancer drug rights The agreement also calls for Pfizer to pay as much as US$2 billion to Merck if the drug meets commercial and regulatory goals Phil Serafino
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fizer Inc. will pay US$850 million for rights to a cancer drug being developed by Merck KGaA, giving the U.S. company an experimental treatment of the type that it sought when it made a hostile bid for AstraZeneca Plc. The agreement also calls for Pfizer to pay as much as US$2 billion to Merck if the drug, known as MSB0010718C, meets commercial and regulatory goals, Darmstadt, Germany-based Merck said in a statement yesterday. New York-based Pfizer cut its 2014 earnings forecast to reflect the US$850 million upfront payment. The drug is a so-called immunotherapy, a class of cancer medicines that Citigroup Inc. has said may eventually be a US$35 billion market. The medicine targets anti-PD-L1 antibodies, similar to AstraZeneca’s MEDI-4736,
prompting speculation that Pfizer is unlikely to renew its effort to buy AstraZeneca. Pfizer and Merck will jointly fund research and commercialization costs for the cancer drug and will share revenue, they said. Analysts predict AstraZeneca’s PD-L1 drug will have sales of US$1.6 billion by 2020.
‘Top priority’ The two companies will study the product as a standalone treatment and in combination with other medicines the companies produce. Merck said in September it was seeking a partner for the product, which it’s studying in lung and ovarian cancer, among other indications. “Immuno-oncology is a top priority for Pfizer,” said Albert Bourla, Pfizer’s group president for vaccines, oncology and consumer health-care. “This
alliance enables us to significantly accelerate the timeframe of our development programs and move into the first wave of potential immunooncology based treatment regimens.” Pfizer in May gave up on a US$117 billion takeover for AstraZeneca after the London-based company rejected the offer as too low, and said it was too politically risky for the U.S. company to seek to move its tax domicile to the U.K. Under U.K. regulatory rules, Pfizer can resume its effort to buy AstraZeneca, if it chooses, after Nov. 26. Pfizer and Merck also agreed to co-promote Pfizer’s Xalkori medicine in the U.S. and other markets. Because of the upfront payment, Pfizer now sees 2014 earnings per share of $1.40 to $1.49, compared with $1.50 to $1.59 previously. The company maintained other elements of its 2014 financial guidance. Bloomberg News
Business Daily | 15
November 18, 2014
Opinion
New frontiers wires in affordable housing Business
Leading reports from Asia’s best business newspapers
Charles S. Laven Jonathan Woetzel
President of Forsyth Street, an impact investment company A director of the McKinsey Global Institute
THE KOREA HERALD The number of part-time workers in South Korea has topped the 2-million mark, data showed yesterday, as the government is striving to create more jobs amid concerns that Asia’s fourth-largest economy may relapse into a slowdown. According to the data compiled by Statistics Korea, the number of part-time workers had reached 2.03 million as of August, up 7.9 percent, or 149,000, from a year earlier. It marked the first time that the number of part-time workers exceeded 2 million. Those workers accounted for 7.9 percent of total employment, the data showed.
THE PHNOM PENH POST China is set to loan Cambodia up to US$300 million to build a series of warehouses aimed at assisting the Kingdom’s fledgling rice industry. Mey Kalyan, senior adviser to the Supreme Economic Council, told the Post that China had approved in principle the Ministry of Economy and Finance’s loan proposal and that both parties are expected to sign off on the agreement early next month. The loan is to be used to build more than 10 warehouses equipped with dryers capable of storing at least one million tonnes of Cambodia’s paddy.
VIETNAM NEWS The State Bank of Viet Nam and the World Bank on Wednesday signed a US$500 million loan for a project in support of Viet Nam’s energy sector. The funds will cover construction of over 1,000 kilometres of transmission lines and implement Smart Grid technologies to improve reliability and quality of electricity supply. “Improving energy efficiency is critical for Viet Nam’s ability to meet energy demand to power growth and maintain improvements in welfare,” said Victoria Kwakwa, Country Director for the World Bank in Viet Nam.
THe STRAITS TIMES Home buyers picked up 765 private condo units last month, as developers rolled out a range of new property launches. This was a 18 per cent jump over September’s 648 unit, data from the Urban Redevelopment Authority showed yesterday. The estimates came on the heels of a dismal quarter of sales for the three months to Sept 30, during which developers shifted just 1,596 condo units - the lowest quarterly figure since just 419 units were sold in the fourth quarter of 2008.
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roviding decent, affordable housing is a growing challenge in developing and developed economies alike. With demand far exceeding supply, the adverse effects – on mobility, productivity, and growth – are (or will be) increasingly apparent. Fortunately, there are ways to narrow the affordable-housing gap substantially, using mostly market-based approaches at the municipal level. Worldwide, 330 million low- and moderate-income urban households either live in substandard housing or are so financially stretched by housing payments that they must forgo spending on essentials like health care and education. By 2025, that figure could reach 440 million households, or about 1.6 billion people (one-third of the world’s urban population) – and that does not even cover some of the world’s poorest people, who often live outside of cities, on urban streets, or as squatters, leaving them unaccounted for in census estimates. Replacing today’s substandard housing and building the additional units needed by 2025 would require an investment of an estimated US$16 trillion – a daunting figure, to say the least. But there are four key “levers” that can reduce the cost of housing delivery by 20-50%, thereby making housing affordable (amounting to no more than 30% of total income) for households earning 50-80% of the median income in most cities. The first lever is more efficient land use. Acquisition of land for development in the right location at a reasonable price has the greatest potential for reducing housing costs. Location is especially important in developing countries, where many areas lack adequate transport, water, electricity, and sanitation infrastructure. Investment
in these areas would improve and expand land use – whether by unlocking unused land or equipping areas to support more inhabitants – thereby helping to reduce housing costs. Similarly, cities can loosen landuse restrictions, such as unit size requirements, to allow for higher-density, and thus more valuable, projects. In exchange for providing the increased value to real-estate developers, municipal authorities could require that a portion of the land or a certain number of units be set aside for affordable housing. Such a cross-subsidy would increase the housing supply across income bands, at no direct cost to the public. The final step toward improving land use is the implementation of measures to discourage land hoarding. China, for example, imposes an idle-land tax on formerly public land if its owners fail to initiate the development process within a year. This brings us to the second key lever to expand affordable housing: a more cohesive and efficient construction industry. As it stands, the housing-construction industry is highly fragmented, impeding its ability to take advantage of economies of scale, and builders often rely largely on the same methods used 50 years ago. By standardizing design elements like ceiling heights, fixtures, and flooring, construction companies can cut costs and raise productivity, as workers gain experience with repetitive tasks. Further savings are possible through industrial approaches, such as the use of components – for example, walls and flooring slabs – built offsite. And most builders lag behind other industries in terms of the efficiency of purchasing and other processes. Together, these improvements could cut housing-construction costs by up to 30% and delivery
To expand access to finance, countries can improve underwriting by establishing credit bureaus, which are uncommon in developing economies, and training and certifying property appraisers
time by 40-50%. The third key lever to make housing more affordable relates to operations and maintenance – everything from heating the building to repairing cracked tiles – which account for 20-30% of total housing costs. Here, the biggest opportunity lies in efforts to improve energy efficiency, with insulation, windows, and other retrofits generating energy savings of 20-30%. Additional savings would be possible if maintenance and repair companies were more transparent and competitive, and operated on a larger scale. To this end, public institutions could certify and list suppliers that meet quality standards, or bring owners together in buying consortia – an approach that has helped the United Kingdom’s social-housing agencies cut costs on some items by more than 20%.
The final affordable-housing lever is expanded access to finance, especially for low-income households, which often face the highest borrowing costs – if they can gain access to finance at all. For the world’s many “unbanked,” who cannot accumulate savings or establish a credit record, the only option is to pay steep risk premiums for high loan-to-value mortgages. To expand access to finance, countries can improve underwriting by establishing credit bureaus, which are uncommon in developing economies, and training and certifying property appraisers. In some countries, collective-savings programs – that is, provident funds and building societies – have helped low-income households to accumulate down payments, with the pooled savings also providing capital for low-interest mortgages. At the same time, to reduce financing costs for developers, municipal bodies can “de-risk” projects by committing to purchase affordable units or guaranteeing qualified tenants. Cities can also streamline approval processes to accelerate completion. These four levers, if used systematically, can reduce the costs of housing for those who need it the most, while creating a better-functioning market that provides more choices for households across income levels. Indeed, while municipal and national governments will have to take additional measures to address the needs of their poorest citizens, cities have powerful tools at their disposal for closing their affordable-housing gaps. Though no single solution will work everywhere, initiatives that integrate land policy and more accessible finance with efforts to modernize housing construction and management can lead to progress everywhere. Project Syndicate
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November 18, 2014
Closing HK’s unemployment rate steady at 3.3 pct
Mayor’s alliance of tourism cities founded
Hong Kong’s unemployment rate stood at 3.3 percent in the August to October period, same as that in July to September, the Census and Statistics Department of the Hong Kong Special Administrative Region (SAR) government said here yesterday. The underemployment rate also remained unchanged at 1.5 percent. Matthew Cheung, the Secretary for Labour and Welfare of the Hong Kong SAR government, said the latest figures still indicated a largely steady employment situation up to October. However, he said labour market indicators needs to be closely monitored..
An international mayor’s alliance of tourism cities has been founded in central China’s Zhengzhou city to promote cooperation and exchange. Mayors and representatives from 63 cities in 24 countries as well as 37 Chinese cities signed the convention during the International Mayor’s Forum on tourism in the capital of Henan Province. According to the document, improved exchange and cooperation mechanisms among cities concerned should enable expansion in tourism. The three-day forum, which ended yesterday, also witnessed the signing of contracts involving 60 key tourism investment and financing programs.
billion yuan (US$125 billion), the China Banking Regulatory Commission said in a statement November 15. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier. The People’s Bank of China has injected 769.5 billion yuan into its banking system over the past two months, stimulus that’s done little to ease financing costs for borrowers, according to UBS AG.
Correction signs
Distressed loan buyers watch china developers China’s leaders are discussing lowering next year’s economic growth target amid falling home prices and rising inventory
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uyers of distressed loans are watching China’s property market closely as debt soars and growth falters. Nomura Holdings Inc. and Bank of America Corp. say they’ll pay more attention to Chinese developers in 2015, having profited from trades in India, Australia, Korea and Indonesia. “There’s been a lot of nervousness around the real estate sector in China,” Andrew Tan, Nomura’s head
of secondary trading for loans and special situations in Asia ex-Japan, said by phone November 12. “We’ve seen some selloff in terms of some of the bigger names in the loan space which, typically, you don’t see being offered in the market. They are at high yield, stressed levels.” The number of publicly traded developers with liabilities exceeding equity in China has jumped to 136 out of 334, or more than 40
percent, from 57 in 2007, according to data compiled by Bloomberg. China’s leaders are discussing lowering next year’s economic growth target amid falling home prices and rising inventory.
A survey of economists by Bloomberg News last month showed an expectation for a growth target of about 7 percent in 2015. Home sales shrank 10 percent in the first nine months of this year, with unsold units equal to 14.4 months of contracted sales, Moody’s Investors Service said in a November 12 note. Non-performing loans at Chinese lenders jumped by the most since 2005 in the third quarter to 766.9
Covenant lite China’s property industry accounted for 16 percent of the country’s 7.7 percent economic expansion last year, according to the World Bank.
JD.com Q3 revenue beats estimates
China closer to S. Korea free trade deal
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hina’s JD.com Inc, the country’s No. 2 e-commerce company, posted yesterday a better-than-expected 61 percent jump in thirdquarter revenue as its number of customer accounts more than doubled to 46.1 million from a year ago. JD.com, a distant rival to giant Alibaba Group Holding Ltd, said revenue rose to US$4.73 billion, or 29 billion yuan, in the three months ended September, up from 18.04 billion yuan in the yearago period. That beat estimates of US$4.67 billion, according to a Thomson Reuters poll of 13 analysts. The Beijing-based firm said it expects revenues in the fourth quarter to be 32-33 billion yuan (US$5.2US$5.4 billion) as it continues to invest in a logisticsheavy strategy and to increase penetration in lower-tier cities in China. JD.com’s revenue is a closely watched measure of its operating performance because its profit has been affected by a series of exceptional expenses related to a strategic tie-up with fast-growing Internet company Tencent Holdings Ltd. Gross merchandise volume (GMV) was 67.3 billion yuan (US$10.99 billion), up 111 percent from the same period last year. Reuters
China’s last banking crisis was in the late 1990s when years of state directives saddled lenders with soured loans and forced some US$650 billion of bailouts over a decade. Syndicated facilities in China are already a record US$46.1 billion this year, according to data compiled by Bloomberg. In Hong Kong, the total US$60.1 billion thus far is approaching the record US$63.9 billion in all of 2013. Two of 2014’s top 10 borrowers in the city are developers. Moody’s cut its outlook on China’s real estate market to negative in May. Goldman Sachs Group Inc. turned bearish on property bonds in September, and called them the riskiest part of the Asian junk bond market last month. Outside of Chinese developers, Nomura is shifting its attention toward coal and iron ore producers because their fortunes are tied to demand from the world’s second-largest economy. Bloomberg News
Kwok says protests weigh on its HK hotels
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egotiations on a free trade agreement (FTA) between China and the Republic of Korea (ROK) will be completed by the end of the year, China’s Ministry of Commerce said yesterday. Wang Shouwen, assistant minister of commerce, said all the negotiations will be wrapped up by the end of 2014. The agreement is expected to be signed in 2015 and take effect in the second half of 2015. The agreement will cover 17 areas, including trade in goods and services, investment and trade rules, and topics such as e-commerce and government procurement. Over 90 percent of goods traded between China and the ROK will be tariff-free, accounting for more than 85 percent of bilateral trade value. The FTA would remove tariffs on 92 percent of Chinese goods exported to South Korea and 91 percent of South Korean goods imported by China within 20 years, according to a previous announcement by Seoul. China is currently South Korea’s biggest trading partner and export market, and two-way trade stood at around US$228.8 billion last year according to Seoul’s figures.
illionaire Thomas Kwok said that Hong Kong’s protests have hurt revenue at Sun Hung Kai Properties Ltd.’s hotels and bookings for coming months are weaker than a year earlier. The Ritz-Carlton’s revenue was about 10 percent below expectations for September and October, Kwok, a co-chairman, told reporters after the company’s annual meeting in Hong Kong on November 15. The firm’s other hotels were down by about 5 percent to 10 percent, he said. “For the moment, the impact is mild, but we can see room booking orders for coming months are noticeably weaker than last year’s,” Kwok said. Sun Hung Kai had HK$3.93 billion (US$507 million) of revenue from hotel operations in the year ended June 30, or 5.2 percent of the firm’s total, according to an exchange filing. The company’s hotels include Four Seasons Hotel Hong Kong, W Hong Kong and the Ritz-Carlton in Shanghai. The company’s shares fell 1.1 percent to HK$115.10 at the close of trading in Hong Kong. The benchmark Hang Seng Index declined 1.2 percent.
AFP and Xinhua
Bloomberg News